Quadrillions: You’re Already Late | Mike Belshe, Justin Peterson & Eric Saraniecki

The traditional financial firms, they were caught a little bit off guard with how good the regulation got this year. Um, and so there's a real scramble. And even though, you know, everybody's very excited about the changes that already occurred, it takes time for this to percolate through these massive organizations. And so all of a sudden, the things that were in the incubation lab that were kind of, you know, maybe they'd been set aside a few years back and then getting resurrected. Um, there's a, there's a scramble to figure out how they're going to participate.

Quadrillions is a miniseries produced by Blockworks and is sponsored by Canton Network. Nothing on this show is a recommendation to buy or sell securities or tokens. It's for informational purposes only, and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in companies, funds, or projects discussed, including those related to Canton Network. All right, everyone, welcome back to Quadrillions. We've got episode number 2. This is quite possibly the best trio of people I have ever interviewed at one point in time. So I'm very excited about this. We've got, we've got some, some new friends and some, some old friends. We've got Eric, who's the co-founder of Digital Asset, also behind Canton. You heard from his co-founder Yuval last episode with Don Wilson. If you haven't listened to that, I'd highly recommend it. We've also got friend of Blockworks, friend of the pod, Mike Belshi back on, and new friend Justin Peterson, who is the CTO of Tradeweb. So Justin, welcome to the show. Mike, Eric. Yeah, welcome, guys.

Thank you very much. Thank you.

Yeah, Justin, I thought we could start with you because the show is named Quadrillions. You are, I think, maybe the first website on the Tradeweb website. It actually— it's the first time I've seen the word quadrillions. On a website. It says 3.2— I'm looking at right now, 3.2 quadrillion of USD traded since launch. So I would love to get a little bit of context behind that number and what it means for you guys.

Honestly, that sounds like, you know, marketing's gone, gone pretty— worked pretty hard to get a big number on there. But, you know, we've been trading Treasuries since '98. The firm started in '96. It was— the platform was built in a loft in Tribeca. So we've got our— we've got a good origin story there. And we've been trading treasuries since '98 and have added a considerable number of assets since then. So anything from all government bonds to mortgages, to derivatives, all sorts, equity, credit, interest rate, the whole bit. And I joined the firm in '99. So I've seen a lot of that progression. When I joined, it was really only trading outright treasuries and treasury switches, treasury rolls, really. So, yeah, we've been pretty— have a significant role to play in the electronic trading of treasury securities and in this new evolution, expect to continue to do so and continue to drive innovation in the space.

How many buy-side clients do you have, Justin? Like ballpark, like how many different participants does it take to get to a number like that?

Oh, these days I would say the clients, thousands. I'm not going to say 10,000, but thousands for sure. And by that I mean firms. And those firms can have quite a bit of, quite a few traders. But also understand that we, we trade Treasuries in a variety of ways, which is there's different sorts of markets. We have institutional, you know, where an asset manager may be trading with a, with a, with a dealer. We also have inter-dealer. So we have quite a few Treasuries transacted that way. And then we also have retail where, you know, a financial advisor on behalf of a client can, you know, buy a Treasury. So we cover all different aspects of the Treasury market. So that helps as well in terms of getting that number up to be significant.

Yeah, I was going to say, Jason's being probably way too humble with this introduction of Tradeweb. It's a $22 billion company. It does— I'm looking at your September report here, total trading volume of $63.7 trillion, record average daily volume of $2.9 trillion. So yeah, massive institutional player. Eric, I would love for you to— so I want to spend the next like 45 minutes just talking about institutional crypto adoption, which is this super kind of broad, fluffy thing. So I'd love for you to maybe contextualize it a little bit. You've been in the industry for— I know you were telling me your story, like Cumberland, mining, like, I don't know, 2010, 2011, I forget the exact date, but give us just like state of the union on how we got here and like what, what is the state of the institutional crypto space right now?

It's a hard thing to answer succinctly because I feel like we've come at it from multiple dimensions. So the one dimension that I think people have slept on a little bit is that just us crypto degens that started 15-ish years ago have become the institutions. You know, anyone that held their Bitcoin from the beginning or stacked a bunch of it or have built really successful businesses over the last decade like Belsheet, they've become the institution in a certain sense. I've often said that Bitcoin has become the newest entrant into a high-quality liquid asset space. So as much as Justin's talking about treasuries, Bitcoin is starting to get used in similar contexts, lending and collateral and all sorts of different zones like that. So on one end, it's just that the industry itself has matured and grown up and become a lot more valuable. But then on the other side, Yeah, around '13 when we started working on building out Cumberland, it was a very lonely institutional space. Back then, on a personal level, people would tell me I was going to jail for dealing with Bitcoin in '09, '10 sort of zone. So it was very, very risky. Sorry?

How much time did you serve?

Exactly.

Luckily, I have not. I don't believe I've done anything to deserve that. But yeah, it was a very faux pas topic for a long time. So now the institutions are coming in. You know, a lot of it has happened to service this growing Bitcoin space in the first place. But the secondary benefit is that they've long hypothesized that the rails could be useful for other ways. And I think stablecoins have really helped illuminate what that means. The velocity and composability of assets on these networks have proven to be quite, quite compelling. And the next iteration is, well, what are the obvious fast following asset classes. Previously, there was a lot of talk about access. I'm not sure that access has proven to be as compelling as people would like it to be. I don't know that fractionalization or access to asset classes that you otherwise wouldn't have access to has really been the same draw as access to the dollar. What we're seeing a lot more interest in from the institutional space is again, the composability. The interplay of treasuries or bonds with stablecoins, or if you're talking about alternative investments. A lot of the benefit that I've seen people articulate well is the combination of all the cash flows with those alts and the LP flows. So I think institutional adoption is coming from many different dimensions, but the one that I think is going to surprise and overwhelm the market is going to be the interplay of government bonds and stablecoins.

I totally agree on, on multiple levels. And so, Eric, on your first point, Totally agree that Bitcoin is a, or that those sorts of instruments are definitely crypto instruments are applicable to giving people a means of expressing a macro view. And so that's why we strongly believe that those traditional instruments that were used to express a macro view are going to move into a 24 by 7 context because people would like to be able to express the view using multiple instruments. On the weekends as they do today in this space. But then on the reverse side, you know, the amount of treasuries, the stablecoin providers or issuers are trading is considerable. And once again, they're wanting to do that in a 24/7 context. So that's why we're very bullish on trading moving into a 24/7 for instruments like treasuries and potentially others that could be used to express a macro view and also be used by stables to back their issuance.

Mike, what do you— where do you see the most growth at BitGo right now? Is it in stablecoins?

No, I would say it's actually— it's everywhere. For the traditional financial firms, they were caught a little bit off guard with how good the regulation got this year. And so there's a real scramble. And even though, you know, everybody's very excited about the changes that already occurred, it takes time for this to percolate through these massive organizations. And so all of a sudden, the things that were in the incubation lab that were kind of, you know, maybe they'd been set aside a few years back and then getting resurrected, there's a scramble to figure out how they're going to participate. So those haven't even really hit the market yet. The, for us, you know, being more kind of at the ready on the digital front, you know, these digital asset treasury companies have been, it's been a wild ride in Q2 and Q3. I think Coinbase's numbers yesterday probably reflect some of that as well. Basically, the digital asset treasury companies are kind of like, I think, the traditional finance guys, but just like on steroids. The reason I say on steroids is they're just in this mad dash. They all have this belief that like if they accumulate assets and, you know, basically leverage all that up as fast as they can, that they will be the winner. So they're just taking much more risk than a traditional firm would. Now, back to the traditional guys on stablecoins. Yeah, everybody's trying to figure out stablecoins. They're like, hey, why is it that like these other two big networks, USDC, USDT, are going to be able to get all of the treasury yield? They're realizing, wait, this is kind of a better model than what we used to have. And why don't we get to play? So there's a ton of these that are coming to market. And then everybody wants to figure out how do you convert between all these stablecoins. I think we'll see a massive proliferation over probably the next 12 to 18 months, and then there'll be some amount of consolidation. People figure out who can win and who can't. Um, but definitely a lot moving here. We've had a few press releases in the last couple of weeks around this front as well.

Do you have a thesis about how, how the consolidation happens? There's this tweet that lives like rent-free in my head, which is, uh, congratulations, we've created hyper-fragmented money. And I can't like stop. I can't unsee it. You know, I wish I could remember who did tweet that because it's incredible. But do you have a like sense of what the consolidation path will look like?

I don't really. I think it's a little far away still. Um, and, uh, you know, who knows, maybe it turns out to be a decent way to, um, to, to track your own, your own balances a little bit, even if you don't have that large of a market cap. But if you're, if you're, if we end up with stablecoins that are, you know, in the tens of millions of dollars and less, then I mean, at some point they just become kind of noise. So you're not going to be able to get liquidity off of exchanges at that size, and then you're going to be dependent upon the issuer probably for the liquidity, and you'll run into just like trust issues about, you know, can you actually get out if you need to get out? And that'll create, uh, large spreads, um, because that's risk, right? And so the risk has to be covered. Um, so we'll see how it— we'll see how it goes.

But right now, I flip that Can I flip that question actually back to you? Like, if you think about this hyperfragmentation of money or whatever, I would guess what that tweet was getting at. I haven't seen it, but it's, you know, maybe, you know, we have 100 chains and seemingly 100 stablecoins coming. Like, how do you think this actually plays out?

I mean, I definitely don't know the endgame, and it certainly feels like we'll have more before we'll have less. But I do think that the destination is, is few, just a handful. I think about the stablecoins very similar to L1s, like they're networks. I used to always ask what was the most successful public permissionless network? And the two answers I like are the internet and the US dollar. They've both been super successful. And I think if you think about the dollar like a network and you think about stables that way, then neutrality and broad applicability and being everywhere, it does feel like there are network effects at play. But I think that in the short term to address Belsi's, you know, comment about the risk of these assets. For me, the most important thing to get right is the back end of these assets. So I always think of the front end as like, okay, there's the stablecoin, it's out in all these different zones. The back end is the creation, redemption, and storage mechanism. And where I find a really compelling opportunity to be and what we're working with Tradeweb and others on is being able to 24/7 create and redeem stables with treasuries. and then you have a very safe common vehicle across all of them. So as long as you can around the clock get in and out of these things into a common denominator around the treasury, that opens up a lot of really interesting opportunities for multi-stablecoin liquidity and fungibility. And also if you think, if you extend that into local markets, so if you are in a European market or an Asian market and you have that same sort of tokenized government bond, and you have that fungibility between the bond and the local stablecoin, you also have now like an alternative FX settlement market because you can go into the bonds, settle the bonds globally, trade those through bond markets, and then as you need them locally, you convert them into local stables. And I think that that's going to be a really interesting emerging space. And the trick is to get that backend right. And that's what makes me so excited about working with companies like Tradeweb and also with BitGo because I think they understand that that enablement, it's not just about trying to sit on and hoard the yield of a stable. You need to think about the utility of your money. And part of that utility is this liquidity on the back end. Putting words in your mouth, Belshi, but—

No, actually, Mike was one of the first people who told me that the yield from the stablecoin, that whole world would get flipped upside down. He's the one who got me thinking about that.

And yeah, so You know, there's a mad rush right now to get into OCC-chartered banks, right? And, you know, with the OCC charter at the federal level, the next step is, uh, by the way, BitGo is going to complete that very, very soon. And we've got a conversion. It's not a, it's not a de novo. So it'll, it'll, it'll be live. Um, but, uh, the next step, of course, is getting straight to the Fed itself. And so we're going to have a number of institutions that are going to be able to give straight access that way. Um, in addition to, of course, you can do T-bills. Definitely there's a lot of work to be done on the backend. You know, we saw a mistake that happened, what, 2 weeks ago?

A fat finger. Yeah.

A quadrillion-dollar print or something.

Yeah.

But, you know, that's an interesting problem. Like, this is what we spend a ton of time on. You know, how do you make sure that you cannot mint in excess of the treasury? And of course, we did this with wrapped Bitcoin. Wrapped Bitcoin turns out to be a little easier. You got 2 blockchains, you can check them. It's like super easy, right? Um, with dollars it's a little harder, um, but we actually do do that, right? Where we've got programmatic access to the underlying storage can never happen. Like you just can't, you can't, can't do that stuff. Um, obviously we need to get, get a little better as an industry though.

Yeah. Justin, can we maybe shifting gears a little bit? Justin, can you take us into like almost leadership conversations at Tradeweb and talk about like just this partnership with Canton? Um, you guys just helped complete the first real-time on-chain financing of US Treasuries against USDC on, on Canton. Just take us into— I mean, we can talk Canton, but more broadly, just crypto and your crypto strategy. Like, is this coming from customer demand? Is this coming from a pain point that you were having? Is this coming from like FOMO of everyone else is doing it, we have to do it? Like, take me into those conversations.

So, you know, Trey Webb has always been a client-centric firm. So, and while I've been here, You know, every innovation started in a client's office, and I've been a part of a lot of them. So I could— I could— it's not secondhand knowledge, it's firsthand knowledge. I know that's exactly how we've built everything is we don't sit and use a whiteboard. We sit, we go on to speak to clients, understand what problem we could assist them with, specifically with regard to funding over the weekend for those trading in the crypto market. We spoke to some folks that were interested in doing that. And when you say, well, what if you could do a repo on a Saturday morning and get, you know, whatever stablecoin they wish to on a Saturday for the Treasuries, rather than try to predict on a Friday what funding they were going to require for the weekend, what opportunities were going to be presented to them on the weekend. And they said, no, if we could get it, you know, on demand effectively when we need it, and we would actually want the repo not only to be instantaneous, but also have a very short term, you know, a matter of minutes, you know, the, the, you could see the light in people's eyes when we said we could do that. And so the, and when you see that light, which I've seen before in other instances, you know, that's the opportunity and that's what we need to deliver on to, to, to, to clients. And so that was really how we got into it. Now we had, We had to talk a little bit about Canton. We had done some POCs probably 3, 4 years ago with a small DLT platform, and we actually did Treasury trading and Treasury repo was what we used as the examples. And the first thing we discovered, at least I was sitting there thinking, it's like there was no privacy. It was, you know, data was being distributed throughout the network. There was going to be no way we could hide orders, transactions, whatever it had been. And look, I've been around long enough at Tradeweb to know when you speak with clients, especially when they feel like somebody's front-running them, you know, they start asking a lot of questions and there would be no way that we could really defend the use of a DLT that didn't have privacy built in. And so that's when we started working with DA because, and maybe there are others, but I'm not aware of them. DA is the only one who's built a a network where privacy is built in from the beginning. And so that's how we end up choosing Canton as really our choice. I mean, we, we, we can work with other networks, but really our focus is on developing capabilities using the Canton network.

What's the— from a customer point of view, what is the main problem that you think crypto solves out of the gate? Is it 24/7, 365 access?

Well, no, because we can build that in for traditional assets. I mean, it does require a bit of work, which we can talk about. But to me, it's just a different way to express a view, you know, I think on the macro environment. I mean, you can do it with treasuries, you can do it with crypto. And so I think it's just another asset to be traded and it will be, you know, at some point, I think it'll become less a unique, you know, less of a disparate asset and more, you know, part of the options that people have when they want to express a view on the market.

What you said about client-centric growth, it reminds me actually a bit about how Silvergate became Silvergate Exchange Network back early on, right? What's just, you know, crypto starts getting bigger and bigger. And of course, the crypto moves pretty quickly. Of course, the dollars and wire transfers don't move that quickly. But then the problem becomes actually the weekends and nights. And as the volumes got high, all of a sudden, you know, companies like Cumberland had exposure over the weekends where like they, they just had, you know, they either had to decide to stop trading or, um, just, you know, hope things don't go, go, go south. Um, those practical solutions are, are the best ones. And then now as we think to the next level, as traditional financial firms come in, I mean, of course they need all this. And then in terms of like, why should it be on a blockchain? Well, to some degree, we've had interop, uh, issues that banks have tried to solve over the years, right? Um, and they come in a number of different forms. Often you'll see like a consortium comes together and they're going to solve like how they're going to do some sort of interoperability between them. And yet when you look at the result, they, they usually don't pan out. I don't know, people lose interest, it's hard to get agreement, you get too many people in there, and then like they can't figure out— the blockchains have kind of leveled things right now. You can say, okay, we're We use this blockchain and then you got a little bit more, you know, agreement to be done, but it's much simpler. Um, and a lot of the underlying plumbing has been figured out in a neutral way so that you don't have like one bank favored over the other, or this group has advantage, controlling, et cetera.

Could not agree more. I mean, one of the things we really love about, uh, uh, DLT blockchain, that sort of network is it does level the playing field. So. It's really about competition and who can offer the best service. And so, and we're very comfortable competing in that kind of environment. Now you could say, look, we've been around a long time. We're established firm and doing electronic training for a whole host of instruments, but we still think within the context of competing in terms of offering services to our clients, we're in the best position to do so. So the, so we, I agree with you 100%. What I really like about The network is the leveling and no one having some, shall we say, what I would construe as an inefficient competitive advantage that results in them charging a tax to the industry.

Yeah, there is one genuine technological innovation here in blockchain space too that's an alternative to the consortium model that we've seen in the past is it comes down to the composability. So it's that combination of like, We're all on a neutral level playing field. We have our own ecosystem. We're all competing, but we still have this, this composability, which we haven't had in the past. The closest we've been able to get to is messaging, but messaging is really just that we've agreed on what we discussed, but not what we've actually done. And that's where we already— I've always kind of said we jokingly live in a distributed ledger world for decades already, but our consensus mechanism has been reconciliation. And this is just an upgrade on that consensus mechanism that allows us to guarantee that not only did I say Hey, move this asset, but the asset moved and those things were atomic and I guarantee that it took place. So it just allows us to take the latency that comes from that really poor reconciliation process out of the system. And then with that velocity, we can do all sorts of really interesting new collateral and velocity things we couldn't do before.

Part of that's just that the consortiums always try to just get like the MVP out, right? So, you know, getting to the full, you know, smart smart contract programming language agreement and whatnot was just never even on the table. It couldn't even get off the ground. So we needed the blockchains to kind of just create something that's neutral. Okay, now you can have a discussion about how you're going to interop on top of that.

Yeah, but the— what was, you know, Derek, on your point, the— what was introduced with Canton 3 in terms of the composability across multiple applications or multiple firms is great because we're certainly Uh, you know, we do a lot of things well, but we don't, we don't, we wouldn't suggest that we're going to do all things well. So we definitely like the ability to interoperate with others and have the appropriate transactional semantics to be able to have an atomic transaction across, you know, multiple firms, multiple applications.

Justin, can, how much can this scale? Like maybe we can talk a little bit deeper and a little more like micro detail about the, um, the financing against the tokenized cash that you guys did. Like, how do you see this? What's the, what's the, this gets 100x bigger scenario look like? Like, what, how do you, how do you see this growing?

Well, honestly, it's really down to clients and client demand. We, we were committed to continue to building out our repo platform. I would say we will also go into trading and trading of not only traditional instruments, but also crypto as well. But the, the So it'll be because to be honest, repo and, you know, buying and selling a Treasury, it's all kind of you can be covered by the same sort of solution. So, so we'll definitely— we're committed to building that out and are doing so now. So to me, I'm not worried about the technical issues around trading that will— we're comfortable with being able to deliver that. It really be about demand. And I am, but I do, I'm very optimistic about the amount of trading that'll be done. If you look at the, just to talk a little bit about the trade that was done in July and also the trade was in the end of 5 trades that were done in October. The way to look at it really is, hey, once you've tokenized the Treasury and you have stablecoins, So you have basically the two assets involved in the transaction on-chain. They're free to move whenever they would like. And that's how you achieve the 24 by 7. So it's really about once the, it really kind of comes down to, to me and Eric, I don't know where you got, where you, why you think about this. To me, it's getting things on-chain is kind of critical. But after that, I think the challenges become less daunting, to be honest.

Yeah.

And I'll just— I'll make one comment, I think, especially in relation to scale, because this is— I think it's a bit of a nuanced thing that gets lost a lot. A lot of entities are what they would say, like tokenizing assets. So, hey, I stick this in an SPV, I wrap it, I create this wrapper. You're introducing a lot of really subtle risks— depository, liquidity, withdrawal. And it's not that that solution doesn't work or that they're not well hedged. I mean, people are quite thoughtful in how they bring them to market. So I'm not criticizing it. In the sense that I think people are being flippant, but it does put a natural ceiling on the demand for it. There's a real limit on how much counterparty risk I'm willing to take or liquidity risk I'm willing to take on getting in and out of these wrappers. What's unique about what we've done with Tradeweb and the DTC and all the other participants in this project is to have the real digital treasury on-chain. That's the true legally binding registered asset. It's not some synthetic wrapped version or some indirection or some claim on it. It's the real thing. And so the scale of demand for that is at least whatever the scale for demand of treasuries is today. And then if you add on top of that, the utility profile, being able to move it 24/7 and hold it in new arrangements and incorporate it into your workflows on a very cost-efficient sense, I think that the demand for that is significantly higher than we've ever seen for treasuries before. Just imagine being in any third world country and being able to build a really simple experience in the banking app that says FX or inflation risk, and it's just a tick of a box. And under the hood, they're rotating you into a local government bond or a foreign treasury. Those are very real experiences that can get exposed to users that are not really economical to do today. And if you can provide that at the right price point in terms of execution and opex, I think the demand for that is, is through the roof.

And also, obviously, the increased velocity that you get from the, the, the speed with which one can, uh, and the new sorts of, uh, agreements one can, uh, um, you know, intraday repo on a really short-term basis becomes available. So those things, the ability to trade in and out of assets increases significantly. So that velocity will also increase the transaction rate as well.

Yeah, maybe let's just go down this path a little bit. Do you guys think that we're in this weird interim timeframe where like, yeah, Eric, like you were saying, we've got— we're basically wrapping all these assets, putting it on-chain, calling them RWAs, but it's not— we're not directly issuing the assets on-chain. One thing that Mike and I have been thinking a lot about is just like Will, I mean, it feels like we're in a middle ground and eventually all capital markets just move on-chain. But right now, but you have to have this kind of messy middle right now. It feels like we're in the messy middle, but would love to hear agreement or disagreement on that.

Uh, I think I have kind of a hotter take than most on this. I think that these things that are wrapped but have all the frictions of a real security but don't have the same risk profile of holding the real thing are already dead man walking to an extent. It's like almost the worst of both worlds. Now, I don't say that critically because everything that everybody does to try to rotate something on-chain, I applaud and I appreciate. We learn a little bit more from every one of these things. So I don't say any of this from a position of like looking down my nose. I think the stuff that will win are the two categories at the extremes, which are the real perfected secured interest asset. Which has capital markets scale capability. But then I think there is a very interesting ecosystem of assets that can be created from the permissionless wrappers on top of that. And I think about that, especially in the context of structuring. If I want to ask an AI agent, what's the best way to bet on FOMC surprise cutting tomorrow? I really only care about the price performance of a bunch of instruments. And I might want to get very interesting portfolio structured or really small SMA things. And you can do those on the capital markets side, but the low friction ability to do this on a permissionless version of that, I think is going to be compelling as well. So I think the two extremes both have really large upside. The middle, I would say, I would be a little bit personally nervous if I was actively part of facilitating stuff in the middle.

Mike, what do you think?

Well, the, the wrappers do— there's a lot of uncertainty about how the wrappers and perfecting security and all that will actually pan out if you really had to test it in courts. Um, you know, so this has to get built up. One of the things that Eric said, which was kind of subtle, is the, the counterparty risk, um, in our current systems in the, the, the blockchain world, um, are already becoming material. I've heard this from large institutions that are concerned about you know, how much they're exposed to a particular, you know, crypto firm. Some of them are quite large, and yet, you know, they're running up against the limits. They're like, hey, you know, do I want to be exposed to more than $500 million against this firm or not? And those are big numbers. So we're growing, and these things kind of have to grow in tandem. So the— what's happening now, lots more parties coming in, get diversification, you get less centralized risk. Then the second thing on these wrappers, yeah, I think we're going to need some amount of legal clarity around it, that'll probably become a hindrance at some point. I think right now we're— we have an unlock in the regulatory that's allowing us to grow. Eventually we'll hit something there. But as long as we keep it decentralized enough, that is, no single, single party is holding everything, it should just continue to grow. It's going to take time, of course.

Yeah. Mike, what do you think of it? Is the— what is the role of a qualified custodian? And if you think like 5 to 10 years into the future, like, how are you guys different than kind of an exchange or a brokerage or even like a BNY or a State Street? Like, where does BitGo fit in in the future?

Well, look, we've been thinking about market structure probably longer than most folks in the crypto space. I don't like to call us a custodian at all. We're a financial services company. But what we do is we think that everybody deserves to have a fiduciarily protected account. You know, when you go to your bank, you got a fiduciary there. You go to your stockbroker, you got a fiduciary there. You go to a retail exchange in America, no fiduciary. You might think you do, you don't. And I think that's just a core that you should have. And whether you're an institution or whether you're a retail user, you should be able to count on whoever's holding your digital assets that they're going to protect it with fiduciary care. And that's what we build upon. Now, how do you build market structure in crypto, which started with none? And there's a separation of duties that does need to ultimately shake out. You know, we've got Clarity Act and, you know, it's got some things which are really good about it, really kind of addressing how do you create robust markets. I think they haven't fully considered yet, in part crypto is still growing, but we're going to grow pretty fast and it's important to get these right. Let me tell you what I'm talking about. So look, it just turns out that exchanges lead themselves to monopolies. It's always been true. The place that's got the best exchange is the one with the biggest set of buyers and the biggest set of sellers. And so you end up with monopolies, whether you're talking about CME and the derivatives world, or whether you're talking about equities and New York Stock Exchange. It's a little better now. New York Stock Exchange plus NASDAQ is about 75% of the market. But these guys are the heart of the capital markets, and the US is going to have the best capital markets for the foreseeable future. There's no other market even close. So as we think about the future markets being purely digital, we have to think about how do we protect that exchange from having any type of failure. And then when you have digital assets, you got a couple of things. You've got A, a bearer instrument. All of these tokens, now when they're wrapped, it's a little bit different. You've kind of got maybe a second layer there. Um, but digital tokens, you know, when they're stolen, they're gone. Um, and these are bearer instruments. By the way, we used to have bearer bonds, uh, in the US. We don't have them anymore. They're now, uh, relics in old James Bond movies. Um, but, uh, you know, in general, they're a little bit unwieldy. And so if you have exchanges that are taking custody of bearer instruments and they ever have a mistake— and exchanges seem to have mistakes on this quite often— you know, it could take down an entire capital market and would Imagine if the New York Stock Exchange went down because of that. Um, the second type of risk, which we're getting at more and more now, we're talking about counterparty credit risk. Um, this is what took down Lehman in 2008, you know, 100-plus-year-old institution. You know, humans have a pattern, a habit of extending too much credit from time to time or not understanding where the risks are, and then eventually kind of blowing up. And I think we need to isolate exchanges from that. So anyway, you asked me what is a qualified A qualified custodian, in my view, is the guy that gives you the fiduciary protection over holding your assets, making sure that he's taking all the due care that you would expect with storage of it. If you're going to stake it, that would be staking of it. In terms of integrating with other parties for trading or whatnot, is going to make sure that you've got all of the care that you would expect a real finance person to do.

Yeah, yeah. Eric, as you guys, as you and the team thought about doing go-to-market basically for Canton and getting institutional adoption and assets on the chain and all that kind of stuff, how did you think about whether you should prioritize, uh, like the classic institutional people like Justin and Tradeweb, or whether to go more like crypto-native and get like the Aves and, you know, maybe Uniswaps of the world on the platform? Like, how did you think about just that strategy?

Oh yeah, I mean, the thing is, I think it's a mistake to think of it as an or. I mean, it's definitively and it's just, I guess, more of a point of order and how to sequence these things. So what we've done is we said, look, the internet was a fairly transformational moment, especially from a permissionless network perspective. And there's a really strong case study in that. There was, you know, the result of the internet is that not every incumbent died and got redesigned. Some grew, some fell apart, some new entered into the ecosystem. Some markets were more challenged than others in differing ways. So it left a mark, but it didn't, I would say, like completely reorient who the winners and the key players were. And we thought, okay, if that is going to happen on a financial level, then we know that there is a key role for at least the roles in the incumbency zone. And we need to make sure that the tech is fit for purpose for providing the right outcomes for those institutions. So we started first with working with the most demanding institutions in the world. And it was a very, very hard one set of requirements and capabilities that we built over the years to satisfy those requirements. At the same time, you can't rely on those entities to be your fast movers or your first movers. And so then, you know, you need to start to incorporate in more challenger motion and help them understand how they can lever the tech. I saw a really nice thread On Twitter, again, I'm sorry that I'm blanking who it was, but I think it was Stripe was talking about how when they started to serve the challenger market, that helped them a lot because they got a lot of fast feedback. And also those challengers made it clearer how you should be using the product and designed some of the business models that go with it that made it easier for the institutions to follow at scale. So these things are complementary. They're not at odds with each other. And we thought requirements for the large institutions so they can adopt it was the right place to start. Challengers are growing in our ecosystem rapidly in parallel with some of the largest institutional vendors. And we expect that the institutional vendors will come in scale and follow some of those motions or modified versions of those motions. Or maybe kind of a silly way I say this sometimes is like the game of chess. You've got your 3 phases, your opening, middle, and end game. Opening is you're following moves like, okay, I need custodians, I need wallets, I need stablecoins, I need these base level sort of things on the board. And then the middle game is super creative and you play your asymmetric edge. And then the end game is you're hyper-efficient and you win through being ruthless and correct. I think about the really large institutional adoption as being the big wave in the end game and the middle game being where the challengers create stuff that's really unique and interesting to Canton that you can't do in other places. But it all started first in the opening game, making sure you actually can service all of these people people, you have the right complements, you have the right partners, and things are in place.

Yeah. We've been talking a lot about treasuries. Can we talk equities a little bit? I don't know if this is a question for Justin or for Mike or Eric, but yeah, anyone feel free to take it. Like, you know, treasuries clearly moving on-chain, stable— they're kind of the backing of a lot of these stablecoins. What about equities? Like, we're starting to see people tokenize their equity. I think it was NASDAQ who said maybe one day we'll have, you know, trade tokens on the exchange. Like, what do you guys think about what does this world look like in a couple of years?

I think Eric kind of mentioned it already that maybe like the securities on blockchains are sort of dead man walking or something. I don't mean to misquote him, but I think, I think, you know, crypto folks, you know, often criticize the traditional system for being incredibly inefficient. And that's incorrect. It has a lot of overhead, but it's incredibly efficient because it's got an even larger, more incredibly large volume. And of course, inefficient is like how much do you spend in overhead divided by the volume? So it's amortized over so much size that it's actually relatively efficient for just equities already. So it's got plenty of deficiencies. It could be 24/7. There's things that could be better about it. Um, but it's super hard to build a new market, and the traditional guys have been on the sidelines for the last, you know, forever, up until this year. They, they, they've simply been locked out. They couldn't even try, even if they, even if they wanted to. So I think the experiments for the— that, that could possibly succeed are going to start now. I think probably the incumbents win on tokenizing the equities because they've just got the distribution network. The problem is So many smart people have come along and said, oh, I'll build my ATS, I'll build my broker-dealer, and I'll put it all together. And they can build it, but they can't, they can't get the market to come. And when the market volume is too small, it's just not worth the overhead. So they, they failed literally every single time.

Yeah, I think that's, I think that's a bit of what I was trying to say before, is that the way that people have tried to bring equities to market puts them in kind of no man's land. They can't trade at NASDAQ and NYSE today because they're not the real asset. But if they were and they were registered with the DTC and you had all the right structure and things that we're working on in Canton, then of course they could trade. It's not a maybe, we will. We will. It's going to happen. It's going to happen in the near term.

But it's got to be on the existing markets where there's tons of buyers and sellers because otherwise it's just super hard to just replace that.

That's right. That's right. And I think that on the equity side, it's just a different problem to solve than we found in stables and treasuries. I think stables and treasuries, starts with access and then upgrades into utility. I think on equities, it has more to do with unique structuring. So what's the next wave of super low-cost ETFs look like? Or can I do really efficient SMAs per individual? Can I do event trading buckets and baskets? So I think that it's going to be more in the structuring side of things. And then that's just a little bit deeper down the value curve. So what's less obvious and has, I also think, hurt people bringing equities to market as opposed to stablecoins, that there's not a natural built-in business model that allowed people to kind of get off the ground. So, you know, the stablecoin space, you have the float that'll help outside of the asset on-chain, and that, that's less obvious on the equity stuff. So I think that's also been part of the hindrance is that there just isn't a natural a natural path.

There's one good one, right, which is collateral. Um, so, you know, there's Bitcoin-backed lending, um, which is nice business, 100% collateralized, all that kind of stuff. It's just not that many people have Bitcoin, but tons of people have Tesla stock. That's right. Um, some tokenized form— this could probably be done with some wrappers. I do think we'll see this, uh, you know, Robinhood will do this, the DeFi land will do this. Those tokenized wrappers can be used for collateral. Of course, the tokenized wrappers have introduced another level of risk, as Erik was talking about before.

I think they'll get used. Yeah, I don't ever say these things as a binary. I think they will get used. It's just that they won't be able to scale out of the single-digit billions, because once you get up above that, you're talking about institutional lending markets, and those are the people that really understand this counterparty risk in and out, and they price it very thoroughly, and they're just not willing to take some of these risks for a few more bps or slightly better lending profile from a return perspective. Risk is a big, big part of their calculation. They're sitting on pension fund, long-term length. They're not there looking to take unforeseen counterparty and infrastructure risk. So it's not that they don't work. They do, and they can prove the model, but to a very low cap. And then from there, you need to think about all these subtle and very tricky risks and account for them appropriately.

So away from exchanges, I think you could do quite a bit with either ETF or equity trading. So we've, we've, we've been offering electronic over-the-counter trading of ETFs for quite a long time now, been pretty successful. And it does allow you to move risk and, you know, at block size, at significant size. So I do think you can make a lot of progress in that area in over-the-counter. I'm not— exchanges are not my business, so it's hard to comment on that. But definitely over-the-counter, we expect, you know, tokenized ETFs and all that to definitely be— to take off. And it does allow— once again, it's really about allowing people to express a macro view.

Yeah. Justin, what do you think that crypto builders get wrong and maybe misunderstand about how traditional financial institutions work?

Well, I'll go back to some of the comments made earlier. I think, and Eric probably knows this better than I do, I still think they don't quite get the privacy thing and the need for privacy in transactions because they seem to be, they don't seem to be as concerned about it as we were, right? Which, and I, you know, I usually, like you said, I try, you know, maybe not at home, but in the office, I try to be a little bit humble. And so I'm not sure I know everything, but I do know one thing, which is privacy is paramount.

Well, look, I mean, we actually have to back up a little bit. Like we've had privacy in crypto for a long time. The regulators said all privacy bad. Privacy means you're trying to launder money. Um, so this is this weird irony between like, you know, who is it that wants or sorry, doesn't want privacy. It's only the regulator. It's only government and the government holds back everybody.

I guess I'd say I'm not sure I totally agree with that because You know, ask the US, they will not support any privacy coin. Yeah, privacy doesn't mean completely private. It means only those who should know know, right? You have control over who knows that a transaction is occurring. You know, the two counterparties and then other people that have a role to play within the transaction. So I'm not sure I totally agree with that. But that's what I'm saying is that's necessary.

And when you get into conversations I do find that that is not as, um, look, I felt that, you know, the Bitcoin people sometimes get upset when I say this, but I think it's actually the Achilles heel of Bitcoin for everybody. I mean, I've, I've spoken to so many people over the years. I mean, obviously Bitcoin's fantastic success has got a lot of, a lot of great attributes to it. I don't, I don't mean to knock it down, but some people are like, okay, so wait, if we're all using Bitcoin, then people can see like my past transactions. And the, you know, people don't like that. So they would— they want privacy even at the retail level. Um, I do believe without privacy, even for our mainstream coins like that are just doing store of value or payments or whatever else, if we don't have privacy on it, ultimately it's a hindrance. There will be some other market that will provide the privacy.

Totally agreed.

Yeah, you guys, uh, you guys teed me up there nicely. So like, uh, you know, I just saw Eric like snap his fingers. We get into this semantic debate with people all the time. I mean, I don't like to be pedantic, but the reason that we say that we have not had privacy in crypto before is because all the attempts that we've seen are really around anonymity. I'm a huge Zcash guy. I'm a big Zcash supporter. I've been in the ecosystem for a long time. It's one of the only things I hold for size in my PA. So I'm a really big fan of the application of anonymity when we talk about things like global, borderless, censorship-resistant, above-government cryptocurrency. It becomes a bit more existential when you're talking about issuing a stablecoin. Imagine if JP Morgan called up their regulator and said, "Good news, I can't see the activity of 30% of my accounts anymore, but don't worry, there's an algorithmic black box that gives me a thumbs up that everything's cool." I don't think that that's necessarily the right application of that technology. In the space, we have a tendency to always frame things in these false dichotomies, public versus private, permission versus permissionless. Transparent versus private, and it's always at the extreme. So today the conversation is everybody sees everything or nobody sees anything. And there's even a very lively debate right now around, no, I'm not going to give you the viewing keys on ZK-protected stablecoins. There's kind of a whole thread around this. And I just don't know that that's— there's a space for that. I'm not sure that RWAs, equities, stablecoins is the right space for that. And when we talk about privacy in Canton, we're really talking about there's a set of entities that must know everything at all times. I mean, if you are, if you are the issuer of a stablecoin regulatorily, whether we like it or not, it's pretty clear that you need to know everything that's going on with your stablecoin at all times. So for an issuer of a stable on Canton, it looks to them no different than a stable on ETH. They see every holding, every transfer, everything that's going on. As a holder, you see everything that's in your wallet, you know, every interaction that you've had with someone else and that's it. And if you're someone that's just connected to the network, you have no visibility. It feels exactly the way the internet feels to you today. I've got a browser. I don't know anything that's going on at Chase.com. I have an account. I know what's going on in my account. If I'm Chase, I know everything going on at Chase. And like that, that's tricky in a single asset, but then doing it in composition. So I'm using that stablecoin to pay for a treasury that has a very different visibility set and preserving those visibility sets even when combined It can become very complicated, so I know why people have shied away from building tech that supports it. There are these really complex overlaps on views, and getting that right is a tricky thing to get right. But I think that that is the big enabler to these capital markets flows. I don't think that we are an alternative to Zcash. I think they're complementary, they're different, they're for different purposes. The only qualm I ever have is when people try to apply Zcash tech to a treasury at the DTCC. That to me feels incongruous.

Yeah, guys, as we, as we think about wrapping up, one maybe thought experiment we can end with is if you look at the progress of 2025, especially on the institutional front, it's pretty remarkable considering that a lot of the financial institutions set their budgets and do their planning in, you know, end of Q3, early Q4. So that means all the progress of '25 was done in let's call it September, October, November of 2024, which was actually pre the election for many of those, which is really when the tide started to turn. So I think a fun thought exercise I'd love to do with you guys is, you know, now is kind of the time period when everyone's setting their budget and doing their forecasting and planning for 2026. We're at probably the most excited period of time— exciting period of time for institutional adoption in crypto ever. What, what are the big things that you guys think will happen in 2026, either things that, you know, maybe people are thinking about already or things that you think people aren't focusing on enough? Anyone? I'd love to hear all three of your guys' answers, but yeah, anyone can feel free to start.

I guess the first thing I say, luckily I have more flexibility than what you just articulated. So we were able to, after the election, we were able to pivot because we definitely saw that that was going to have an impact on the market. So we were able to invest and do the kind of work that we've demonstrated throughout the year. For sure, at least from the Tradeweb perspective, we're committed to building out a scalable, significant 24/7 market OTC, whether it be RFQ or any of the other various over-the-counter protocols in whatever instruments our clients would like to trade. So that's That's our commitment for the coming year. So the, the, the, it's really, and it really will come down to, like I said, it's not like I have an asset in mind that we should support. I think it's pretty obvious that Treasuries makes a lot of sense, but anything else, whether it be crypto or traditional, um, it really is going to be based upon client demand for us.

I think all these guys are coming online. Um, I think they've barely gotten started in 2025. Generally. I think the faster moving ones, the ones that have better tech, uh, are trying to move a little bit quicker. They'll come out ahead of the pack probably in early 2026 with some interesting products. Um, and then there's still going to be a lot of laggards that aren't coming out until like late 2026, early 2027. Um, the, uh, the one thing that could torpedo all of this is if we have some sort of collapse of crypto prices and we go back into crypto winter. All these guys will go back into hibernation for a while. Um, and then actually, to some degree, that might be good news for the Bitcos of the world. Um, that, that would mean that of course, um, they would step aside and, um, new owners to finance would come to light.

Mike, as someone who's seen more, more cycles than most— actually, I could ask the same question to Eric. Uh, both, both you guys have— do you— what do you think? I mean, there's a 4-year cycle question in crypto, right? December 2017, November 2021. What do you think is the What will 2026 look like? I know you guys are not traders, but I guess, Eric, you've done—

I don't know. But I think that— I think that where I disagree with Belshi for maybe the first time in the better part of the last 15 years is that the FOMO isn't so much about crypto. Like, I think that people are underappreciating how transformative to the psyche a lot of these institutions, the stablecoins, have been. And just how convicted they are at this point that they need to do something in that space. I think it felt very subversive when JPMorgan started doing JP Coin a while ago. And I think that there are some budgets that are not so conditional on the price of crypto and they see the rails starting to make more sense for them than just the crypto participation. It's not that it's completely decoupled. There's a sensitivity, but I think that you'll start to see the ecosystems that have true utility and that people are adopting for utility will start to become anti-correlated with the rest of the macro space if we had a downturn. But I think people are going to get blown away this year at the pace at which people adopt these technologies because the ones that are behind and are feeling FOMO are doing the right thing and are partnering. And there are people that have been for the better part of a decade building out infrastructure to make it possible. And so they, they're no slouches, you know.

Look, you said you weren't sure you agreed with me on this one. Let me, let me hit it one more time on the stablecoins front. Um, you know, banks have been traditionally bad at payments for decades and decades, right? I mean, it's the reason PayPal exists, it's the reason Venmo exists, the reason Cash App exists is because banks have just not been able to innovate. And even with the tool of stablecoins, they can now see like, oh, that's the thing we need to go for. But in order to win in stablecoins, you got to innovate. So PayPal USD is a great example. I mean, PayPal is a great company. And don't mean to criticize them. They launched their stablecoin, I don't know what, 2020, 2021. And yet USDC, you know, mopped the floor with them. How is it that PayPal, with PayPal's brand, PayPal's distribution channel, couldn't get ahead. Well, they couldn't figure out how to cross the streams of their existing business and the PYUSD business. And so PYUSD languishes. They've, they've had kind of a rejuvenated effort, you know, more recently where they figure out, oh hey, there's more than just the brand that matters. But I think on the stablecoin front, even though everybody's coming in, there is going to be a redefinition of banks. By the way, banks as depositories where like retail puts the deposits in and then lends it out, this is all going to completely change. Banks like SoFi, I think, are going to lead some of the technology changes internally there. But I think the stablecoins, as excited as traditional finance is about it, I think it's going to not have much impact to them and it's going to more come from actually the crypto companies.

Yeah, but you know what, to be slightly empathetic to PayPal there, when you're trying to do stablecoins on a fully transparent system, it really only has demand in crypto. And there Tether and Circle have the market on lock.

Payments need to be on your cell phone, they need to be taps, they need to be super easy. Uh, Venmo, you know, like all kinds of these features. And it's really about figuring out how you're going to take to market. I don't think the inhibitor, uh, for them getting to a size of— well, in fact, you know, like Circle got to $50 billion, PYUSD didn't. So if pay— if PYUSD were capped by the fact that it's a public blockchain, they would have gotten to $50 billion, right? But they didn't. So they failed at the starting gate, not at the— hey, they needed more blockchain technology.

I think all I'm saying is that the new horizons for stables are still unexplored, and it's a very competitive space in the crypto space.

There's a lot of innovation. This is a great thing. Like, we've got the innovation out now.

Yeah, 100%. Well, Justin, Mike, Eric, Always good to see you guys. Thanks for joining. And yeah, we have a really good episode 3 of Quadrillions coming up. So stay tuned, folks. Make sure you guys follow along and see you next episode.

Thank you.

Thank you.

Bye-bye.

Bye.